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It sounds great in an action movie: “This is no time to panic!” But… is it ever a good time to panic? Sounds like a lot of work, anyway. 😊
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As we know, the markets go up and down. It’s just part of the deal! But sometimes the peaks and drops can get a little intense, so it’s worth revisiting this reality once in a while.
The most mindful long-term investors are usually less alarmed by the bumps along the way. They know what they’ve got is basically a lifetime pass on a rollercoaster. But it’s the ride to greater potential returns, so they can keep the thrills in perspective.
What would the alternative be, in our rollercoaster example? If you get spooked on a big drop, there’s no abandoning your seat. “Please keep your hands, arms, feet, and legs inside the vehicle while on this ride,” the announcement cautions.
It’s best to stay in your seat, your best chance to get to the end of the ride in one piece.
As long-term investors, we know that we can afford to let each cycle just run its course. Jumping off the ride partway through sets us up for more trouble and more work than it would ever be worth: how would we know when it’s best to jump back on? How do we know that we’ll be able to jump safely?
We hope this is context enough to allow us to be blunt with you: long-term investing is a ticket for the whole ride, whatever that may mean.
Selling out? Selling out is a one-way ticket out of our shop.
Your resources are your business. Where you park your wealth is your decision, completely, and each one of us needs to do what is best for them.
But we choose to keep at it for those who are thinking about the long haul. We believe it’s the most effective approach to a lifetime of financial wellbeing—and whatever legacy might stretch beyond your lifetime!
Clients, we strive to communicate our values and intentions clearly. Do you need to clarify anything with us? Call or write, anytime.
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Clients, what do we do when things get so churned up in the markets? We go bargain hunting, of course! In this special message, the team talks bargains, the long view, and keeping the faith through a downturn. Reach out with questions, anytime.
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Clients sometimes ask why we don’t just pull back when the market starts going down.
It is a fair question. We are thinking about a number of things in formulating investment strategy and tactics:
In short, the ups and downs are part of investing. We each face a choice between stability of values and long term investment returns. There is no way to get both of these things on all of our money, although we may have some of each.
It is important to know where our money will come from, the funds we need in our pocket. For investors, it is also important to know that our long-term portfolios will go up and down.
We mentioned above that the average stock market decline in the course of a year is 13%. Let’s be clear about what that means: a $13,000 drop on a $100,000 portfolio; $65,000 on $500,000; $130,000 on $1 million.
Here’s some solace: by the time you notice we’ve been skewered, we are closer to recovery than when the decline began. One year out of four, on average, the market (measured by the S&P 500) declines. Think about it—three years out of four, on average, it has gone up.
We don’t pull back because we do not want to miss the rebound. Our experience has been that we can live with the ups and downs. It isn’t always easy, but our experience has been that it works out over time.
Clients, if you would like to talk about this or anything else, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing, including stocks, involves risk including loss of principal. No strategy assures success or protects against loss.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted.
This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
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The best clients in the whole world don’t always enjoy the smoothest ride. Clients, I’m not trying to speak for your experience or tell you how you feel… but the ride has been a ride, right?
A core of the households we serve has been with us 17 or more years! The story of our time together can be captured pretty simply, and you’ve heard this before.
“Buy low, sell high” and other classics have become some of our favorite principles: seek the best bargains in the investment universe, own the orchard for the fruit crop, and avoid the stampede.
Our formulations are a little contrarian, but they also aren’t that complicated. So what makes this commentary even worth making? Clients, you know the ride is a ride, and we’ve hung on together. The secret, then, is people hate being uncomfortable.
Buddhist teacher Pema Chödrön explains, “As a species, we should never underestimate our low tolerance for discomfort.” Strengths deepen and develop. Strength begets strength, success compounds. Those forces help us weather the tough times and keep perspective.
We’ll leave you with Chödrön’s take: “To be encouraged to stay with our vulnerability is news that we can use.”
Clients, need a check of perspective? Call or write, anytime.
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We’ve all heard the basic maxim of investing: “Buy low, sell high.” And at 228Main.com, we have talked repeatedly about the perils of buying high or selling low. Just last week we asked, “Where are you on the ride?”
It is true that buying high or selling low can easily hurt you, and to avoid acting rashly, you do need to be able to recognize where you might be in a cycle.
The flip side may be true, too: you also need to be able to make timely moves when the time is ripe. Our philosophy focuses on value investing, and we are fortunate enough that you, our clients and readers, have internalized many of these notions. (So you know that we are not talking about “timing the market.”)
So the “buy low” part is relatively easy: hunting for bargains is fun and exciting! It is easy to look at a company trading at depressed prices and imagine the possibilities, even as you know that they may not necessarily come to pass.
The other part—”sell high”—is more difficult. A holding that has treated you well can be hard to get rid of. It is easy to get greedy and let it keep riding in the hopes of further returns.
But what goes up must come down. The more inflated prices get, the less sustainable they are. When prices enter an unsustainable bubble it is wise to protect your gains by selling while the selling is good.
This does not have to be an all-or-nothing process, though. You might still believe in a company’s long-term story even if prices look unrealistically high right now, in the short term. In this case it might make sense to hedge your bets by only selling part of your holdings. This lets you pocket some gains while keeping some exposure in case of future growth.
This becomes especially important when you have a high-flying investment. If certain holdings are outperforming the rest of your portfolio, they may swell up to become oversized relative to the rest of your holdings. Over time you may find yourself with too many of your eggs in one basket; periodically rebalancing away from a hot streak can help spread your risk around.
Of course, there are no guarantees. None of these strategies are magic. But letting your investments ride with a few big winners can leave them vulnerable to a big tanking at even a hint of bad news. Heck even totally decent news can spell a crash for a hot stock that’s being held up by unrealistic growth expectations.
How do we know when it’s time to get off the ride? Clients, when you have questions or concerns about your holdings, please call or email as always.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
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